Insolvent Banking System, Investor Opportunities in the New Abnormal
Stock-Markets / Financial Markets 2011 Nov 05, 2011 - 02:20 AM GMTBy: DeepCaster_LLC
“Folks, the EFSF, the bailouts, China coming to the rescue, all of that stuff is 100% pointless in the grand scheme of things. Europe’s ENTIRE banking system (with few exceptions) is insolvent. Numerous entire European COUNTRIES are insolvent. Even the more “rock solid” countries such as Germany (who is supposed to save Europe apparently) have REAL Debt to GDP ratios of over 200%. The Germans still have not recapitalized their banks. Again, it does not matter what Sarkozy and Merkel say. It does not matter how much leverage the EFSF gets. Europe is broke, end of story. Those investors who get suckered into betting this mess will work out well are very likely going to lose everything. The impact of the fallout from this will make 2008 look like a joke. The EU is the largest economy in the world. So if its banking system collapses (and it will), we are facing a full-scale global financial meltdown, that even the IMF has warned about. What happened in 2008 was literally just the warm up. The real deal is coming in the next 14 months. It is going to involve corporate, financial, and sovereign defaults.”- Graham Summers, Phoenix Capital Management
How refreshing it is when a Major Government makes, and admits to, Market Intervention, based on Market and Economic Realities, and not on Hope or Delusions, or Misinformation or Disinformation or Manufactured “News”.
In one Arena, that of Currency, Major Governments do often publically admit to Intervention, as did Japan this past Monday when it trumpeted its Intervention (the third this year!) to weaken the Yen to make its exports more competitive.
But regarding the Intervention in other Markets (e.g. Gold, Silver, Equities) Major Governments/Central Banks are still loath to ‘fess up.
But monitoring and analyzing Interventions and Market and Economic Realities in Major markets is essential if one is to timely seize Opportunities for Gain, rather than get hit with substantial losses.
Of many examples of suffering as a result failing to focus on Market and Economic Realities, perhaps the best is the recent Bankruptcy of Jon Corzine’s MF Global. Almost unbelievable it is that MF apparently used 40 to 1 leverage and held positions in over 6 billion in Euro Sovereigns’ Debt. We suppose IMF Global thought they were wise holding all the PIIGS countries debt but Greece’s (They held Belgium’s instead – thus holding the debt of all the PIIBS).
It boggles the mind that ex Goldman-Sachs Chief Executive Corzine’s MF Global could be so divorced from present and prospective Market Realities that they thought that holding the PIIBS Sovereign Debt (and with leverage yet!) could actually be profitable and wise. (Perhaps if they had read Deepcaster, or Graham Summers,… or other Market-and-Economic-Reality-oriented Writers… it might have been different.)
No surprise to us that the Euro-Powers did Intervene and provide Greece with stop-gap (i.e. temporary) relief of an ostensibly $100 billion Euro write-down. Of course since the 50% Private Creditor Haircuts were ostensibly “Voluntary” no CDS (i.e. Credit “Insurance”) Event was triggered.
But given this precedent. Who is going to trust the efficacy of CDS “Insurance” ever again?!
Remember that Hedges are only as strong as the strength and character of the counterparty. “Voluntary” Haircut… Nonsense.
But there is another prospective event that the Euro-Powers should have predicted based on a Market Reality long Evident – Greece can not pay even under the terms of its New Deal.
Thus the on-again, off-again Call for a Referendum (whether one will actually occur is an open question).
In fact, as we forecast months ago, Greece would likely default (and it has) and we have also forecast that Portugal is next. Moreover, private holders of Italian and Spanish and Irish, and eventually French and British debt will have to take Serious Haircuts of 50% or more, at least, and even those will not save some of those nations from default.
In sum, in the Markets in general, and in the Precious Metal Markets in particular, it is essential to analyze Market and Economic Realities and the Interventionals, especially in the P.M. market because The Cartel* has for year conducted a campaign to suppress these prices.
Such analysis of Market and Economic Realities and ongoing and prospective Interventions is essential to best estimate the timing and effect of Interventions and thus the optimal timing for Trading or Investors.
We are in a New Abnormal in which the very Structure of Markets and Economies are all at risk and subject, like it or not, to Dramatic Change. This fact leads us to identify 4 opportunities for gain.
First, having for years monitored Interventions in the P.M. Markets, Deepcaster has in recent months noticed one Major Investor-Positive-Development laden with Opportunity: Cartel Price Takedowns of Gold and Silver have been neither as deep nor as durable in recent months, as they have been in recent years.
But the Takedown Attempts continue and are, temporarily successful.
This provides a Great Opportunity to Buy Gold and Silver near the bottom of Dips, in light of very high probability of a Rebound. Of course, there are factors to consider in addition to the “Buy the Dips” Strategy. The Silver Price is, for example, also affected by prospective levels of Economic Activity, since it is used in Industry.
Second, we believe there is developing a Great Opportunity in Silver. Prospective demand for Silver exceeds Prospective Supply. There is an increasing shortage of Physical. And pro-Silver Sentiment is at a four-year low, according to Sentimentrader.com.
In recent year, every time Silver Sentiment has been so low, it has been followed by Dramatic Rallies. We do not think it is time to plunge in just yet (though we have already recommended one leveraged Silver play), but we believe that time is near and will make that call when appropriate.
Third, the Eurozone Monetary and Political Union, as we know it today, is likely to collapse, or at the least, dramatically change.
Graham Summers identifies four reasons this will happen:
- The European banking system is leveraged at 25 to 1 (twice that of the U.S. e.g.) so a 4% decline in equity wipes out capital!
- European financial corporations operate with debt of 148% of total EU GDP!
- Euroland banks have to roll over from 15% to 50% (depending on the bank) of their total debt by 2012.
- Many Euro Nations have Massive Unfunded liabilities. The typical Euro Nation would require 400% of its GDP to be banked earning interest to cover these… Not possible.
Bottom line: Within a year and a half, Euroland as we know it today will no longer exist.
In that year and a half, there will be dramatic opportunities to gain from the Euro Mega-banks’ and Politicians’ Pain, and we have identified specific opportunities to recommend when the time is right.
Unfortunately, the European people and Citizens and Investor-Citizens around the world will also suffer as this plays out.
Fourth, Official Figures regarding Inflation (and other Metrics) are Bogus.
All the Fed and other Central Bank Stimulus and Mega-Banks Bailouts, have put the world at the threshold of Hyperinflation (witness the dramatic increase in Food and Energy Prices).
The U.S. Real CPI is at 11.4% for example, per Shadowstats.com**. Accordingly, we have made Investment Recommendations designed to profit from this Reality.
But those who have the Courage to see the Truth of Market and Economic and Interventional Realities, in The New Abnormal, will be able to protect their Wealth and Profit.
By DEEPCASTER LLC
www.deepcaster.com
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Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.
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